Consequences of the Massachusetts vote

At Seeking Alpha, Bruce Krasting has interesting thoughts about last week’s vote in Massaachusetts. One of his points:

“I read the election result as being dollar positive. Somewhere inside this vote last night is a call for fiscal conservatism. We are going to hear rhetoric to that effect in the coming months and we will see legislative steps that at least give lip service to the idea that we ought to tighten our belt a few notches [emphasis added].”

I agree with Krasting that we will hear a lot more rhetoric about fiscal conservatism. I also agree that we will see legislative steps that give lip service to the idea of cutting spending.

However, I doubt any measures will emerge from Congress that go beyond rhetoric and lip service.

There are a couple of ways to look at the results from Massachusetts. The consensus view seems to be that voters there are fed up with Big Government approaches to policy problems. There is probably some truth in this, but I don’t know if that was the overriding factor. Consider:

1) Massachusetts already has universal health coverage and there is no effort there to repeal it. Sen.-elect Scott Brown voted for this program and apparently has no regrets.

2) Nationwide, many elderly people oppose President Obama on health care reform because they don’t want Medicare cuts and they don’t want rationing of care (“death panels”). They want Medicare to cover pretty much everything, regardless of cost-effectiveness (or lack thereof). These voters are not calling out for limited government, but rather they support the status quo.

I expect policymakers and politicians in both parties — from Fed officials to Congress to the President — to become even bigger Pander Bears than they already are (if that is possible). There will be plenty of rhetoric and lip service about the need to be fiscally responsible — that’s for sure — but please don’t expect any real spending cuts to materialize.

Eventually there comes a point when the lack of spending restraint will be inflationary. How long it will take to reach that point, nobody knows.